by Christy Bieber | April 11, 2021
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In most cases, the answer is no -- but not in every case.
A subprime mortgage loan is a mortgage loan made to borrowers who don't qualify for a loan at a competitive interest rate. The interest rates with a subprime loan are usually very high, which can make borrowing much more expensive.
In most cases, it does not make sense to take out a subprime mortgage loan. But that doesn't mean you should never borrow with this type of debt.
The key is to explore all your alternatives first. And if a subprime mortgage is your only option, you'll need to make a careful assessment of whether borrowing this way is worth it.
Borrowers with low credit scores shouldn't assume they're automatically relegated to subprime loans only. In fact, there are options available for people who want to get a mortgage with bad credit.
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Government-backed loans, including FHA, USDA, and VA loans can all be great choices for those without stellar credit, as they tend to have more relaxed qualifying requirements while still offering reasonable interest rates. In fact, FHA loans are available with credit scores as low as 500 if you make a 10% down payment. Meanwhile, USDA loans and VA loans don't have any minimum credit score requirements.
Before you even consider a subprime loan, you should find out if any of these other loan types will work for you.
If, for some reason, you can't find an alternative to a subprime loan, there are a few specific conditions that should be met in order for it to make sense to still borrow. Specifically:
If all of these things are true and you can't wait to buy a property, then you may decide paying the higher interest rates associated with a subprime loan is worth it.
When possible, though, you should focus on improving your credit and income so you can become a more competitive borrower -- and then buy a home. That may mean having to wait a little while, but it may be worth it, especially if you can save a lot of money in the long run.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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